Proposal would stick fork in failed regional water project, but not possible lawsuits

A state Public Utilities Commission judge's proposal would, if adopted, formally signal the end of the regional desalination project in favor of the Monterey Peninsula Water Supply Project.

But the spectre of litigation among the regional project's three former partners over the millions of dollars spent on it would remain.

Administrative law judge Gary Weatherford's proposed decision, issued Tuesday, found it would not be reasonable to require California American Water to proceed with the regional project, which was backed by a public-private partnership that included the county Water Resources Agency and the Marina Coast Water District.

Weatherford argued there was "simply too much uncertainty" associated with the regional project because of a "significant change in circumstances since 2010," leaving the project with "no reasonable prospect of achieving its goals" by the 2017 deadline for meeting the terms of a state-ordered cutback in pumping from the Carmel River.

While it was "unfortunate" Cal Am withdrew its support for the regional project, Weatherford said, there appeared to be no alternative than to allow the company to pursue the new project as a replacement solution rather than letting "time continue to elapse and costs continue to accrue."

Cal Am spokeswoman Catherine Bowie said the proposed decision validates the company's pivot from one project to another.

"It's important that the commission acknowledged that the regional project is not moving forward," Bowie said. "We were pleased to see affirmation that our actions in dealing with (the project) was reasonable."

County Counsel Charles McKee believes the proposed decision will shift attention solely to the new water supply proposal.

"We believe the decision will focus everyone on the water solution being proposed as the next project, and to see if that comes to fruition in the near future," McKee said.

However, Marina Coast General Manager Jim Heitzman said, the judge's proposal left questions unanswered about the district's spending on the project, which he argued was "deemed prudent and reasonable" and was spent on behalf of the Peninsula's water needs, with the understanding that the money would be repaid.

Weatherford declined to resolve or suggest a resolution to the ongoing dispute among the partners regarding project expenses, and specifically declined to declare a formal "project cessation," as requested by Marina Coast, under the terms of the project's water purchase agreement. He said that would trigger certain "rights and duties" among the partners, and opined that the jurisdiction for resolving any "claims or causes of action" under the water purchase agreement is with the courts and not the commission.

In his proposed decision, Weatherford said Cal Am reported racking up about $32.6 million in regional project bills, including work on the preceding Coastal Water Project. That doesn't include the $8.2 million the company says it is owed by Marina Coast and the county.

Marina Coast and the county dispute the notion that they owe Cal Am anything, and have suggested it is they who should be reimbursed.

Marina Coast estimated it has accrued up to $10 million in expenses, while the county has spent an estimated $4 million on the project.

The judge said the partners have indicated they are meeting to discuss the issue to determine whether they can reach a settlement or head to court.

Weatherford offered a neutral judge to mediate, and suggested Cal Am should file a new application if it wishes the commission to help resolve the matter.

Heitzman said Marina Coast would like to avoid spending more public money on litigation, and the best outcome would be a settlement. He said district officials will reach out to Supervisor Jane Parker, who represents the Marina Coast area, to help them recover their investment.

The proposed decision must still be approved by the Public Utilities Commission, which could consider it as soon as July 12.

Approved by the PUC in December 2010, the project largely stalled following conflict of interest allegations involving former county water board member Steve Collins, who was being paid by a private consulting firm working for Marina Coast on behalf of the project while he was a public official.

The county and Marina Coast conducted investigations, as did the District Attorney's Office, which filed a series of charges against Collins last fall. The state Fair Political Practices Commission is also investigating the matter, expanding its probe beyond Collins to include county supervisors and other public officials.

The project, which also faced financing and legal challenges, essentially ground to a halt last summer when the partners began arguing over whether the project agreements were still valid and who had potentially breached them.

In August, the partners entered confidential mediation sponsored by the PUC, and by late September, Cal Am sent a letter to its partners terminating the water purchase agreement.

After months of mediation without a resolution, Cal Am declared in January it was withdrawing support for the regional project. In April, Cal Am applied to the PUC for a new water supply project.